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The Business Corporations Act - A Review

October 27, 2021

Ontario

,

Canada

Issue

Can a resolution a corporate board of directors pass a resolution verbally without confirming it in writing?

Conclusion

Section 104 of the Business Corporations Act provides that a resolution may be passed in lieu of meeting, but it must be in writing and signed by all the shareholders. Section 129 provides that a resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors or a committee of directors, is as valid as if it had been passed at a meeting of directors or a committee of directors. Under section 140, a corporation is obliged to prepare and maintain minutes of meetings and resolutions of shareholders. (Business Corporations Act)

Corporations are artificial legal constructs whose organization, operations and transactions are almost entirely governed by the provisions of statutes and the interpretation they have received. The statutory formalities and legal requirements governing their formation, organization and governance may affect the validity of the actions of the corporations, its directors and shareholders. Written records and resolutions are essential to the performance of these requirements. Individuals who do not respect the legal formalities and requirements do not have a strong case for relief when they sign documentation relating to the ownership of shares without reading it, or attempting to understand it. (1307592 Ontario Inc. v. Triventa Technologies Corp.)

In Tchoumakov v. Mikhalenia Stinson J. concluded that the party advancing a claim in the absence of written record of this claim was not a credible witness, even though the corporation generally lacked proper records - no formal written resolutions or minutes recording the issuance of shares, election of directors or appointment of officers were maintained by anyone.

In Anderson v McWatt the respondent was asked to locate the resolution he claimed existed in the 12 volumes of corporate documents. When the respondent said that there was no document, the resolution was not taken to exist.

Law

Section 104 of the Business Corporations Act, RSO 1990, c B.16 provides that a resolution may be passed in lieu of meeting, but it must be in writing and signed by all the shareholders. Section 129 provides that a resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors or a committee of directors, is as valid as if it had been passed at a meeting of directors or a committee of directors. Under section 140, a corporation is obliged to prepare and maintain minutes of meetings and resolutions of shareholders:

Resolution in lieu of meeting

104 (1) Except where a written statement is submitted by a director under subsection 123 (2) or where representations in writing are submitted by an auditor under subsection 149 (6),

(a) a resolution in writing signed by all the shareholders or their attorney authorized in writing entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders;

[...]

Resolutions in writing

129 (1) A resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors or a committee of directors, is as valid as if it had been passed at a meeting of directors or a committee of directors.

[...]

Records, duties of corporation

140 (1) A corporation shall prepare and maintain, at its registered office or at such other place in Ontario designated by the directors,

(a) the articles and the by-laws and all amendments thereto, and a copy of any unanimous shareholder agreement known to the directors;

(b) minutes of meetings and resolutions of shareholders;

(c) a register of directors in which are set out the names and residence addresses, while directors, including the street and number, if any, and an e-mail address if one is provided, of all persons who are or have been directors of the corporation with the several dates on which each became or ceased to be a director;

(d) a securities register complying with section 141; and

(e) a register of ownership interests in land complying with section 140.1. R.S.O. 1990, c. B.16, s. 140 (1); 2015, c. 38, Sched. 7, s. 44 (2); 2019, c. 7, Sched. 6, s. 1.

In 1307592 Ontario Inc. v. Triventa Technologies Corp., 2003 CanLII 19877 (ON SC) Cullity J. held that written records and resolutions are essential to the performance of valid corporate functions:

[13] Prior to March, 1999, the documentation relating to the organization, and the affairs, of Triventa was in considerable disarray. None of the parties had shown any interest in co-operating with Mr Crossley’s attempts to implement compliance with the legal formalities required to place their indirect holdings in Triventa in the ownership structure they wished to establish. Corporations are artificial legal constructs whose organization, operations and transactions are almost entirely governed by the provisions of statutes and the interpretation they have received. The statutory formalities and legal requirements governing their formation, organization and governance may affect the validity of the actions of the corporations, its directors and shareholders. Written records and resolutions are essential to the performance of these requirements. Individuals who do not respect the legal formalities and requirements do not have a strong case for relief when they sign documentation relating to the ownership of shares without reading it, or attempting to understand it.

In Tchoumakov v. Mikhalenia, 2011 ONSC 678 (CanLII) Stinson J. concluded that the party advancing a claim in the absence of written record of this claim was not a credible witness, even though the corporation generally lacked proper records - no formal written resolutions or minutes recording the issuance of shares, election of directors or appointment of officers were maintained by anyone:

[3] At the heart of the dispute between the parties is the lack of proper corporate records. No formal written resolutions or minutes recording the issuance of shares, election of directors or appointment of officers were maintained by anyone. What records do exist are spotty and sometimes inconsistent. The case comes down to a credibility contest between the two principal witnesses, Mr. Tchoumakov and Mr. Mikhalenia.

[...]

[25] By reason of the foregoing events, neither Mr. Tchoumakov nor Mr. Gerasimtchouk was associated with the operations of ACC during calendar 2006. There is no evidence that either of them advanced a written claim or demand for payment of dividends, holding of a shareholders' meeting or any other rights associated with an alleged interest in ACC. It was only after Mr. Tchoumakov learned of the March 2007 sale by Mr. Mikhalenia of ACC, that he proceeded to assert a claim for an interest in the corporation, by way of this litigation.

In Anderson v McWatt, 2015 ONSC 3784 (CanLII) the respondent was asked to locate the resolution he claimed existed in the 12 volumes of corporate documents. When the respondent said that there was no document, the resolution was not taken to exist:

(m) During his cross-examination, the Respondent was asked when he asked the Applicant to pay money into Stratus so she could contribute to the purchase of 28 Atlantic as he pled at paragraph 29 of his Amended Amended Amended Answer. He advised that it was sometime between the date Stratus was incorporated, July 21, 1988 and the date of marriage, February 11, 1989. He was then asked to point to a document evidencing his request. The Respondent stated that it was a resolution of Stratus. He was unable to locate such a resolution in his 12 volumes of documents. It is inconceivable that there would be a resolution of Stratus wherein the Respondent asks the Applicant to fund cash into Stratus. When this was put to the Respondent he stated that his request was not in writing and there was no document.

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